Apple’s Big Glowtime Event… And Brian Niccol Takes The Wheel At Starbucks 9/9/24

0:02Live from the Nasdaq market site in the heart of New York City's Times Square this is Fast Here's what's on tap tonight. Apple blows up. The tech giant unveiling its latest slate of iPhones and Apple Watches. Shares staged a rally in the last hour of trading. What got investors running into the stock? Plus, can Brian Nicol perk up Starbucks, the former Chipotle chief taking the reins at the struggling coffee chain today? Will he have the magic to recaffeinate shares? Oh, boy. And later, big banks booming in today's rally. Don't be a hater. But will the gains continue? Shares of Summit Therapeutics soars on new cancer drug trial results.

0:35And we dig into Oracle's latest earnings report. Can the old tech titan keep outperforming its peers? I'm Melissa Lee coming to you live from Studio B at the NASDAQ. I'm the Destiny. Tim Seam, we're Karen Feinerman, Courtney Garcia, and Guy Adami. A sea of green on Wall Street as markets try to recover from last week's sell-off. The Dow adding nearly 500 points. It had been up more than 650 at the peak. The S &P breaking a four-day losing streak, gaining more than a percent. And the NASDAQ also up more than a percent. We'll have more on that later on in the show. But first, we start off with Apple's Glow Time event, the tech giant releasing a slate of new products, including its latest iPhone and setting a date for the rollout of its Apple intelligence features.

1:14CNBC's Steve Kovac live in Cupertino. He's got all the details. Hey, Steve. Hey there, Mel. Yeah, the big takeaway from this Apple event today is that it's really going to take several more months to find out if all those new AI features are compelling enough to spur what Apple bulls have been expecting to be a massive iPhone upgrade cycle. Now, the iPhone 16s, that's what was announced today, they're getting an exclusive AI feature that other devices won't get this year. It's called visual intelligence. That means you can point your camera at something out there in the real world and get a lot more information.

1:45They use this example of taking a picture of a restaurant and making a reservation there. Now, this is something already in products from competitors like Google, Meta, and OpenAI. Now, other than that, though, this is kind of your standard iPhone upgrade cycle here. The screens are a little bit larger. The battery life is a little bit better. The new processors are going to help those phones run faster and also enable all those upcoming AI features. But as for the rollout of Apple intelligence, Apple made it clear it's going to be a slow one over the next several months. The iPhone 16 and the iPhone 15 Pro, they're going to get that first update this fall with a limited set of features, such as summaries for your text messages.

2:23But the best AI features, that means more powerful versions of Siri, integration with ChatGPT, image generation, things like that. That's not going to come out until later. and some won't even happen until 2025. Now, Apple did give some more hints about the AI rollout outside of its initial U.S. English launch this year. It's going to come to other English-speaking countries like Australia and Canada first, and then more languages like Chinese, that's a super important one, and Spanish coming next year. But overall, we didn't learn too much about Apple's AI plans beyond what we already knew. Mel, I'll send it back over to you.

2:56New languages meaning that for Chinese, you mentioned it's a super important one, but it's really for Chinese users here in the United States using the U.S. large language model as opposed to any sort of a date for a China large language model rollout. Yeah, that's going to be a step towards that China rollout. I talked to Tim Cook about that actually a little over a month ago, and I asked him, how are you guys going to launch this in China because of all those strict regulations there? They still got to work on that. They literally need approval from the Chinese government to launch an AI model there.

3:26So that's going to take some time to work through. But for now, yes, Chinese speaking outside of China, that will be enabled now. All right, Steve, great to see you. Thank you. Steve Kovach, live in Cupertino at that Glow Time event. Well, the stock didn't sell off. It had every opportunity in this market context to sell off, potentially. And it closed on change. It did briefly, but then, yeah, caught up at the end of the day. No, yeah, and volume was in line with what we've been seeing. Wedbush had a note out. They said this would be the largest upgrade cycle in the history of Apple phones. And they cited, supported in particular by improving Chinese trends.

4:03Got it. Okay, that's all very good. Again, it comes down to, I think, valuation in this environment. I mean, it's on the numbers today where it closed, 30 times next year's numbers, 11 % EPS growth now, maybe, and you got less than 8 % revenue growth. So, you know, that's what you're paying up for right now. If you believe that to be the case, yeah, then I guess it's fine. You can talk about the install base, but I still think it's expensive here. We were having a very robust discussion on Friday's show. We were. Apple was a defensive play. And so in this environment, you have the upside potentially of AI and the rollout of the AI features.

4:36Plus, you have the defensive nature of Apple and its balance sheet. Well, what makes it defensive in addition to that is I actually think that the services business has now been surprisingly resilient in terms of that growth. The ability to get a services multiple is part of, I think, I know that's not, they don't go together. defensive and kind of high multiple. But to the extent that Apple deserves a higher multiple and it has a higher multiple because of a services business that's better. I think what's interesting about this release is that this is not hardware dependent, even though it is and it's not.

5:05I mean, in the hardware dependency days, we got some sense well ahead of that day what those hardware upgrades were gonna be. There's still some sense of, until that iOS 18 comes out in October, we hope, or the company hopes, I think, so that people can truly try it out and see that they then want to do the upgrade cycle for the underlying hardware. I think that's very important, and I think that's what makes this release a little bit different. But a stock that for two years did zero, and now when it got above that 185 to 195 level, that range now up to 230, 235, is a 20 % band that right now, I think the stock's probably going to trade in that band for a little while, but I think it is defensive.

5:42What do you think, Karen? So I think, well, we'll have to wait and see. That was sort of part of what was a little bit underwhelming today, right? I mean, some of it was like, oh, and you'll be able to get this on the phone in the coming months. Well, you could point the phone at Guy Adami and say, what is this? It will say, what? Stud. You asked the question. You asked the question. I sure did. I don't know what to tell you. I sure did. I set that one up. Sorry. Right. So, I mean, that was somewhat vague. It certainly doesn't make you think, oh, I've got to rush out, buy this now. And at some point in the future, I will have the ability to upgrade into that new AI, whatever those tricks are.

6:14I mean, some of the camera stuff I thought looked great. They always do great camera stuff. Some of the stickers look fairly amusing. Stickers meaning like the emoji kind of things? A shrimp cowboy was one that I saw. There was another one. What did you say? A shrimp cowboy. Like you could say, let's say you're talking to your friends. We want to go get some shrimp fajitas or something. I don't even know what. And you would say, yeah. Someone will say, yeah, shrimp cowboy. And that'll be the sticker. Ah. Okay. And you'll laugh a lot. And that'll really be. Yes, there was another one. I forget on the action.

6:46That was the short clip they did. There was another one that was, I don't know, a frog in something or other. Okay. Really feeling unmet needs here. Yeah, that's not worth the 30 times multiple. So I sort of feel like it's still kind of a wait and see. I do think, though, that poor numbers at the very beginning of the launch don't give us enough information. Right, right. Yeah, I definitely think it's a wait and see because I don't think this was enough to poke holes in the story, that it's not going to be the super cycle everybody's hoping, but it's also not enough to confirm it yet. And I think we're going to really have to see.

7:22And I think this is an especially tough environment because you're seeing, you know, earnings release after earnings release. Companies are talking about how discerning the consumer is and are they going to want to fork up money for a very expensive iPhone right now in the face of inflation? Or are they just going to say, eh, it's like a couple other features. I don't need this right now. So then we're going to have to wait and see. I'm not wholly convinced, and especially at 30 times earnings, which you say is expensive, and I do agree with that. I don't know if I would be jumping in here, but again, it's a show me story.

7:47I don't think this was enough to make a decision. Just one other thing to add, though. The price is interesting. They talked about up to$800 back. I don't know what you need to have to get$800 back, but I think that matters somewhat. Maybe a shrimp cowboy. Maybe a shrimp. At least one shrimp cowboy. And then also they talked about longer battery life, which is one of the, I think, a very common complaints. I feel like that's a low bar, though, to say longer battery life. I don't know. It's helpful. I don't know how much helpful. But going back to the Wedbush note that you've cited, the other point, though, was that you don't necessarily need people to upgrade to the 16 for AI features.

8:25Because so many people out there, like myself, have really old iPhones that just need an upgrade because there is no battery life anymore. Yeah, you're right. But again, and Gene will talk about this in a minute, but some of the excitement around this, you know, the biggest upgrade cycle in the history of the phone, you know, it really needs to prove itself under those circles. I mean, it's, I guess, not a normal upgrade cycle is what the street is looking for here. But is it priced in? I was going to say, is any of that in the price? Because certainly not the biggest upgrade cycle of all time.

8:53And if anything, I think no one has priced it in at all yet. Because, again, this is a stock that's done nothing. And if anything, it does deserve a higher multiple based upon the services component of their business. And that balance sheet that I think is a lot of flexibility. We'll find out. For more on Apple's Glow Time event, let's bring in Fast Money friend Gene Munster. Gene, so you're listening to this discussion. shrimp cowboy, et cetera. What is price in? I mean, is a super cycle in any way priced in? Not even close, Melissa. I think if you look at the street numbers right now for fiscal 25 is looking for iPhone growth of 5%, 6%.

9:29It's been basically flat the last couple of years. This is a lot of talk of a super cycle, but investors are generally following the same roadmap as the traders are, your esteemed traders are today. That's kind of a wait and see. And I I would just say one perspective of this wait and see. A lot of the conversation today is about details of announcements, about specific features, pricing, timing, all of that makes sense, but ultimately it is noise. And the reason why it's noise is because to think of Apple intelligence as a feature is a trap. Ultimately, this is a paradigm shift. This gets back to the question about where can these numbers go?

10:05And now I just wanna quickly frame in the last paradigm shift we had around Apple devices. It's when the first iPhone came out, going from a flip phone, a keyboard, to a touchscreen. There were seven other competitors out there with touchscreens, but none of them were able to capture the power of an app store. That changed a phone to a computer in your pocket. What Apple Intelligence has the power to do is ultimately bring simplicity and infinite intelligence to your pocket. Apple, 1.8 billion consumers are going to want that. Melissa, we're going to have a super cycle. it's going to exceed the 5 % to 7 % the street's at.

10:40Can you talk to Gene the difference in how the tech giants are pricing their AI products? And I think I asked you this question last week in that why does Microsoft Copilot, why does it charge something on top of as opposed to offer it as an integrated feature? And for the app, for iPhone 16 users, it'll be integrated into the phone. So can you speak to that strategy and how that may actually help the rest of the pack in terms of selling their AI products? Because here you're getting consumers to actually try it out and say, you know what? AI is not bad and it's actually helpful to my life. So I will pay for it elsewhere.

11:20So the way the pricing has been working so far is it's a spectrum and OpenAI really led the way with this. They give a free version away and then they have a premium version that you pay$20 a month. that obviously has been the model now that like Gemini uses, Microsoft is adopting a similar approach and Apple is going to do the same thing. A lot of the functionality that people are going to use day in, day out, this paradigm shift that I'm talking about is going to be available in October and November for US users. And that's just going to impact that will be free. That will be free if you upgrade your phone, upgrade your hardware, your Mac, your iPad.

11:53And so I think that's one piece to it, the pricing strategy. The other is, of course, as more of these rich features come out, And that's where there's a new business model. There's a lot of questions like, what does beyond an iPhone upgrade one or two year cycle mean for Apple and AI? And they can have these more rich products that they can sell open AI with a premium version that Apple take a 15 % cut of. And so I think it's going to be a tiered pricing model, Melissa. And I think we're just so much talk about AI, but so few people have actually used it. And I will bet you that anybody who experiences these features are going to want to tell other people about them.

12:31So, Gene, you're bringing up a really interesting kind of history lesson and a point about the competitive landscape at the last, you call it, seminal moment. And I think about Apple here, and we spend so much time talking about China and why it's a headwind. But how about the rest of the world? I mean, is there anybody close? Are they taking market share in other parts of the world? It's part of the conversation we never had. And with this backdrop, does this further cement them as the leader in the places that aren't really China? So about 1.8 million active users. They don't give that number out, but that's an estimate.

13:02So you think about kind of five or six, seven billion kind of active daily Internet users. So that's been pretty stable, Tim. They really haven't been able to grow their market share much. I could see this as something that could take their phone market share from 18 to maybe 20 percent. So think of that as a kind of a marginal improvement. But what you said, I think it's really important. I just want to emphasize something is that what Apple is doing here is there is something unique about bringing hardware services and software together. I don't say it because I don't want to parrot the company's language, but I think it is important that the features, the reason why Apple has a 95 % retention rate is that even though you can get a lot of those same features with Android, people love how everything works together.

13:42And I think they're going to do some of that same simplicity around bringing AI to multiple devices that you'll have. And I think that that's going to be a competitive advantage. And ultimately, I think it's going to mean incremental share gains. But more importantly, with that user base, is them spending more money with Apple. Hey, Gene, it's Karen. Do you foresee at any point a bifold or folding phone from Apple?

14:09Maybe. they're testing some devices clearly the bigger form factors tend to sell better so I'm sure there'll be some experimenting around that I can say from a product perspective the piece that I am most excited about and this is a shift from what I've talked about before I still believe that Vision Pro can be five percent plus of revenue I used to think it could be ten percent but I think what they're going to do around wearables airpods with cameras ultimately that's a much bigger opportunity than a foldable phone. This is basically smart glasses without having to wear smart glasses. This is some of the same features that Steve talked about.

14:43This is the Google Astra type allowing AI to look at the world around you. I think that's a really compelling, we're probably a few years away, but when you think about what's next in terms of hardware, I think these wearables around AirPods and cameras are exciting and can be 10 % plus of revenue. The phones seem to be getting bigger. I mean, Gene, 6.7 inches, correct, is the new phone. So that's very large. Right. I mean, I don't think there's a need for a foldable phone, I would say that. I think there is a need for some smart device that goes along with you for glasses or some AirPods with cameras.

15:16Gene, great to see you. Thanks. Gene Munster. Thank you. Cupertino. And of course, Karen, you were referring to Huawei's rollout over the weekend of its latest phone, which is a tri-fold phone, which sounds great for ladies with small purses. Yeah, right. Or small pockets. Why just ladies? Or Tim. I think we have to recognize that there are other people that might want these features. But this gets to China. They got three million pre-orders in a couple of days, 48 hours or so. And they are, you know, sixth place in China, something like that? Qualways number two? Yeah, I think the share loss in China is notable, and it's been rapid.

15:54And you wonder how much of this is geopolitics and how much of this is innovation. I don't think, you know, the what do we call the trifold trifold phone guy? I don't I don't think that's the innovation that sinks them in China. Staying in the tech space, Oracle stock soaring after the company's latest earnings report. The software giant beating on the top and the bottom lines, announcing partnerships with Google and Amazon Web Services. Deidre Bosa is following the action is here with the details. Hey, Debo. Thank you. Deidre. All right. She's standing by, but apparently we are having difficulty connecting with her.

16:30The stock is up 8.7 percent. We were just talking about this because it has been outperforming its peers. And there was that outstanding question as to whether or not this earnings report would deliver. Well, it was the remaining performance obligations, which were gigantic, like well beyond. I think, you know, it was up mildly as the headlines are coming out. And that is just an enormous number. But always, you've got to see on the call. But these partnerships are interesting. I don't know how it works. I think tomorrow they're doing a 1 p.m., I think, describing more of the AWS partnership, how that works.

17:02But that RPO is just tremendous. All right. The stock is up 9%. Debo's on the line. We've got a connection. I think you've got guidance now. What's the latest here? You know, I was so engrossed in the earnings call, Melissa, that I totally missed you guys. Safra Katz, the CEO, has just been running through it. We don't get it when the earnings come out. We just got it now. I'm still trying to figure it all out. But shares are holding on to their gains. She said that she is confident and committed to their full year revenue guidance, growing double digits, full year infrastructure revenue growing faster than next year.

17:35But really, the main story out of this quarter is that Oracle is justifying its AI run with its latest results. Cloud infrastructure business continues its trajectory up 45 percent last quarter year over year. Kat's pointing out that the unit now has annualized revenue of$8.6 billion. Now, OCI, of course, is a key part of Oracle's shift to enterprise cloud services provider, competing with the hyperscalers, but increasingly joining them, partnering with them too. In the earnings release, Executive Chair Larry Ellison, he called that newly announced AWS partnership a milestone in the multi-cloud era.

18:10He says that soon customers will be able to use the latest Oracle tech from within every hyperscalers cloud. That has certainly changed from a few years ago when there were more competitors on the AI front. Oracle is still spending big on chips. 42 additional cloud GPU contracts signed in the quarter for a total of$3 billion. And I just also want to point out this chart, guys. I found it really interesting. Oracle shares have outperformed Microsoft since chat GPT was released in November 2022. I'm going to jump back on this call, but again, It's managed to hold on to these gains after outlining guidance, and we'll get to analyst questions hopefully soon.

18:46Mel, back to you. All right. Deidre, thank you. Deidre Bosa. So what do you make of Oracle here, that chart against Microsoft? That's an interesting one. Yeah, and I think it's really impressive to see. I mean, some of these numbers coming out when you're seeing that infrastructure cloud growth, I mean, that is going to justify the next AI story, and they have been so much cheaper than a lot of the other AI plays out there. So the big question is, like, have we already priced it in with your NVIDIAs and your Microsofts, et cetera? It's kind of that next tier down who's starting to benefit. I think a big question I do want to see with them is they have a very large debt position currently.

19:14And the question is, with all this growth, is that going to incur a lot of additional capital expenditure? So what is that going to mean? So, yes, they're a discount to their peers, but, like, what does that mean for their stock going forward? And I think that's the big question right now. All fair. The RPO that Karen talked about, up 53 % year over year. I mean, it's become, if you think about it, in valuation, you compare that against Microsoft. You can say Microsoft's a better company. It's true. But I think Microsoft's trading at 31 times. Oracle, even with this move, is probably just north of 20.

19:44If you look at the margin guide, that's better for next quarter. There's nothing not to like here. The only thing not to like is the fact that the stock has been pretty much parabolic over the last year. With all that said, though, I still think it's reasonable at these levels. We've got a market flash here on Hewlett Packard. Enterprise shares are lower. The company proposed an offering of$1.35 billion worth of convertible preferred stock. HPE plans to use the proceeds to fund its acquisition of Juniper Networks and other, quote, general corporate purposes. The stock is down 4.9 percent. And speaking of old school tech, we are digging into IBM.

20:17Shares outperforming the broader tech sector over the last few months. But can it continue? We'll debate that. Get a check on the chart straight ahead. Plus, another huge move in the biotech space. One company surging nearly 60 percent on new drug trials. That stock and the competitors getting hit after the break. Don't go anywhere. Fast Money is back in two.

20:44Welcome back to Fast Money. Summit Therapeutics topping the tape, soaring 56 percent to an all-time high. A phase three study conducted in China showed its experimental lung cancer drug cut the risk of disease progression or death by 49 percent compared to Merck's Keytruda. Summit's drug is the first to beat Keytruda in a head-to-head trial, sending Merck shares lower by 2 percent. Guy, you're commenting that could have been worse for Merck. Should have been worse, I think, given the scope of Keytruda, how important it is to earnings and their entire franchise. I think there are 18 different indications that Keytruda has that might be off by one or two.

21:17So what does this mean if we're connecting dots? It means now, in my opinion, Merck's going to have, I thought they had to do something before. Now with this news, I think they absolutely have to do something. What does that mean? Make an acquisition. Who's out there? This Viking Therapeutics that we keep coming back to, and they have a bullseye on their back. In a good way. And I think that's how you play all this news, Mel. They only had a few more years of patent exclusivity. 28, I think. Exactly, yeah. So I would think that people are already thinking, you know, get on it, Merck. Extend your patent.

21:47You know, they're working on subcutaneous versions, et cetera, to try and extend that life. Yes, they are. And they talk about it. It's going to be a hill, more of a downhill than a cliff. But it certainly begs the question, what's next for Summit, which I see has not a ton of cash. No, it's not dire or anything like that. And you've got to think, all right, they've got to be, I don't know if Merck could buy them. Somebody would buy them, you would think. Right. Well, if they need the cash, I mean, to get from phase three to approval to the market, right, that takes a lot of money. I don't want to put anybody on the spot, but what percent of Merck sales is Keytruda?